BUSINESS ORGANIZATIONS OUTLINE

Agents and Employees; An Introduction to the Organization of Business:

Rest Agency: s1 agency is a consensual fiduciary relationship b/t 1

person (agent) who agrees to act on behalf of or under auth of & under

the dir & control of another. (principal)

Agency has highly institututional effects most things in a free mkt

system. We make agent's actions are binding on the principal. We give

the principal the beneit of the rts or prop acquired by its agent.

W/agency we allow principal to broaden the scope of its activities.

Tort law uses agency to eliminate privity as a barrier to recovery. (by

victims)

Vicarious liability: liability w/o fault based upon relationship. Can

be the result of the creation of an agency. Principal can be liable for

torts of her agent.

Apparent auth; inherent agency, etc.

Agent: person who acts, generally.

Principal: one for whom action is taken.

Indep. Contractor: (non-agent or agent)

Agent: Master-Servant relationship

Master-Servant:

Servant: an agent employed by a master to perform service in his affairs

& who's physical conduct is controlled/subject to rt of control by the

master.

***An express K or agreement isn't req'd to create an agency. Agency is

simiply a consensual relationship. The agent agrees to subject to

principal's rt to control.

Tort: whether servant was acting w/in the scope of her employment.

-If servant is, then master will be called to answer by virtue of his

relationship to servant w/o fault.

Partnership: Uniform Partnership Act; an association of 2 or more

persons to carry on as co-owners a business for profit.

Partner is a general partner. (v. limited partners)

*** w/a general partnership, they are exposed in general to unlimited

personal liability.

Limited partnership: ususally liability will not exceed amt of one's

contribution. You generally don't have a voice in the operation of the

business.

-When does a limited partner cross the line of separation? (w/bus

operations)

ie. Corp is gen partner, indivs control operation w/limited

partnerships. Can do that usually.

Indep Contractor:

Non-agent: person who contracts to do something for another & is not

controlled by that other person re: his phys conduct in performance of

the work.

Fowler v. Penn. Tire Co.:

Penn delivered tires to Martin (bankrupt). K appeared to be a

consignment agreement, but actions of the parties appear to be a sales

agreement.

Consignment: after goods are delivered to dealer, no obligation arises

on part of dealer to pay for them.

Trustee in bankruptcy claims they were sold to Martin, so are part of

Bankrupt's assets & can be used to pay off the creditor's.

Look to the actual language of the K, & then also look to the

actions/conduct to determine the intent of the parties.

No segregation of tires, no signs to identify being sold on assignment.

Pro: Referee for Martin/Fowler. Dist Ct for Penn. Ct. App aff'd for

Penn.

Options for selling tires:

1. Sell to Co. owned stores, Mgrs employed by co.

2. Sell to indep. outlets

3. Sale on consignment

If you operate a business, there are a number of ways to operate, each

having diff levels of liability.

Who Bears the Risk????

Adv/Disadv of options:

1. Employee: Co can set prices, Indivs aren't resp for advertising,

Liaility is on employer, Profit goes to employer, etc.

Greater control w/co operated stores. Don't have to rely on indep

operator to sell tires.

Greater risk of loss b/c co borrows money to buy & stock the stores.

Also must invest in training.

Fixed costs, irregardless of how much is sold (salary). Lack of

incentive for emp to maximize profits. (if salary only)

Issues: salary, bonus, type of work to be performed, hrs, duration of

agreement, & terms of employment.

2. If Martin is an indep-Kor Non-agent:

Penn isn't req'd to train, purchase stations, etc. No liab of Penn to

Martin.

Penn incurrs less risk, less costs, etc.

Penn needs a sales force to push to indep dealers, more mkting costs.

May be problems w/quality control. May be lower profits.

Issues are credit ratings of owners of the stores, advertising, quality

standards, requirements for selling goods, image of Co.

If sale on consignment, consignee was legally req'd to return unsold

tires. Diff b/t consignment & sale w/rt of return (old law)

***If sale of consignement, then Martin is an agent, acting on behalf of

Penn. Under a pure classic consignment, Consignor doesn't have

exclusive control over consignee. You can vary it by K. Consignor can

threaten to terminate the relationship.

Who has legal title to the tires?

Depends on:

1. Intent of the parties. Conduct may be conflicting w/intent of the

parties.

Penn believed it owned tires is inconsistent w/finding #9.

Dissent: inconsistent w/consignment.

Exercise of Control re: employees & indep. contractors.

Respondeat Superior: Master is responsible for actions of employee.

Servants & indep contractors

Agent v. Non-agent Indep contractors.

Master-Servant: Servant agrees to work for Master & is subject to

control of Master.

Employee Versus Independent Contractor and The Exercise of Control:

Humble Oil Refining Co. v. Martin:

A servant isn't an indep-contractor. (agents & non-agents) Possible

w/agent indep contractors.

Generally, an indep-Kor agent is when one agrees to act on behalf of a

principal & the principal will not likely have control over the physical

act, but will have control over the result.

Facts: Love dropped off her car at Humble station operated by

Schneider. The car rolled away, striking & injuring the Martin's. The

car had been left in control of the station for repairs. Rolled by

virtue of gravity b/c hand E-Brake wasn't set.

Focus is on actual authority.

Humble says not liable b/c:

1. Schneider was an indep Kor Non-Agent

Schneider & Humble had an agreement whereby Humble paid a substantial

portion of the utilities & controlled the store hrs.

Humble has the rt to control the sale of gasoline.

Schneider is an indep-nonagent w/re: service.

Held: Schneider is a servant of Humble & Humble is liable for

Schneider. Master is a principal who hires an agent to perform services

& conduct affairs & controls/rt to control final product.

An indep-Agent you have some rt of control.

1. Indep Kor: does not act on hehalf of other party. The other party

does not have rt to control hysical conduct.

2. Indep Kor-Agent: acts on behalf of, but not subject to control of

how it's accomplished.

3. Indep Kor-Servant:

Agency: if you are an agent, you generally act on behalf of another &

the other has a rt to control how you act....Makes Indep Kor-agent

definition above make no sense.

Humble Oil: an indep Kor or a servant.

Can have a statement saying they're an indep Kor, but ct may determine

that that person is a servant.

Must determine whether there are indicia of control. Also must

determine whether acting for, but not subject to control of.

Definition of agent & non-agent type independent contractor.

HOOVER V. SUN OIL:

Smilyk apparently dropped his cigarette which started the fire which is

the core of this action. Sun Oil, Barone (operator), & Smilyk were the

D's.

Sun Oil moves for summ J, claiming Barone is an indep Kor & not an

agent, so no vicarious liability. P's contend that Barone was acting as

Sun's agent. P's should contend that Barone is a servant b/c would

expose Sun Oil to maximum liability.

Pro: Ct determines that Sun is not a Master & Barone isn't a servant.

Held: Sun had no rt to control Barone, Landlord-Tenant relationship

only. No control & no implied liability.

Sun had no day-to-day control over Barone's operation of the station.

Barone bears the risk & gets the profit.

MURPHY V. HOLIDAY INNS, INC:

Franchisor: controls the distribution of his goods and/or services

through a K which regulates the activities of the franchisee, in order

to achieve standardization.

Franchisee: enjoys the rt to profit & runs the risk of loss.

P slipped & fell on water drainage from an air conditioner on the

premisies & was injured. The hotel was owned by Betsy-Len, a licensee

of Holiday Inn.

P claims that there is actual agency b/c there exists a Master -Servant

Relationship.

Actual Agency: a consensual relationship, agency is the fiduciary

relation from the manifestation of consent by one person to another,

whereby the other shall act on his behalf & subject to his control, &

consent by the other so to act. Rest 2d Agency s.1

The fact than an agreement is a franchise K doesn't insulate the King

parties from an agency relationship.. If a franchise K so regulates the

activities of the franchisee as to vest the franchisor w/control w/in

the definition of agency, the agency relationship arises even though the

parties expressly deny it.

Consent, Control, & acting under are necc to establish an agency

relationship.

Control and The Liability of Creditors:

GAY JENSON FARMS CO. V. CARGILL, INC:

P's were 86 farmers who sold grain to Warren, an agent of Cargill, who

became bankrupt & never paid the P's.

Warren owed Cargill $3.6 million & the P's $2 million.

Issue: Whether Cargill was liable as principal on K's made by Warren

w/P's. Whether Warren was acting as an agent of Cargill.

Cargill is liable b/c of its control over Warren.

-Rest Agency s1: A creditor who assumes control of his debtor's

business may become liable as a principal for the acts of the debtor in

connection w/the business.

The point at which the creditor becomes a pricipal is that at which he

assumes de facto control over the conduct of his debtor, whatever the

terms of the formal K w/his debtor may be.

Buyer/Supplier relationship OR Principal/Agent???

Agent: one who contracts to acquire property froma 3rd person & convey

it to another is the agent of the other only if it is agreed that he is

to act primarily for the benefit of the other & not for himself.

Supplier: is to receive a fixed price for the property irrespective of

the price paid by him. He acts in his own name & receives the title to

property which he thereafter is to transfer. He has an independent

business in buying & selling similar property.

Where a creditor exercises veto power over imp. decisions, coerces

debtor to put in cntrol a person designated by creditor, & where

creditor provides assurance to other creditors of assurance, then that

Creditor is at increased risk of being classified as a principal &

exposed to liabilities.

Actual/Express Agency

Actual/Implied Authority

Apparent Authority

Ratification

Inherent Agency Power.

In general, if an indiv is acting under ambit of actual-express

authority, then a 3rd pty can enforce the K b/t principal & agent even

when the 3rd pty doesn't know that the agent was acting on behalf of the

principal. [principal is liable]

Actual Express Auth: agent isn't acting contrary to her mandate.

Actual Implied Auth: arises from custom, usage, & conduct. Assume orig

actual/express auth, Can the principal think of everything necc to

accomplish the task? Have agency w/actual-express. Agent may need to

take steps to carry out requests of the principal. Agent undertakes

incidental tasks to accomplish her mandate.

Apparent Auth: ask whether there has been comm b/t principal & 3rd pty.

Comm need not be explicit. Based on holding someone out as the agent,

as having authority, which agent may not necc possess. Must ask whether

agent is held out to the public by the principal.

Ratification: when principal decides to adopt a K, negotiated by an

unauthorized person purporting to act as an auth person/agent.

Inherent Agent: principal should pay for torts of their agents.

Respondeat Superior. Hold the principal responsible for some of the

acts of their agents, which weren't auth, but nevertheless close

to/incidental to acts which were authorized. In general, as a predicate

to inherent agency, it is req'd that there must be an existing agency.

3rd pty has a reas belief that the agent has the auth which he

exercises. Generally don't have any holding out by the principal,

principal is either undisclosed/partly disclosed. Principal is

responsible for unauthorized acts incidental to the agent's actual

powers.

The Scope of Authority; Apparent Authority:

LIND V. SCHENLEY INDUSTRIES, INC. [Apparent Authority]:

P worked for Park, who later merged into Schenley (D).

P originally worked for Herrfeldt, who later told him that he'd been

promoted & was to now report to Kaufman.

Lind contends Kaufman told him he'd get his regular salary plus a 1%

commission on the sales of the people under him.

Pro: Jury found for Lind, then the judge issued a jnov. App Ct rev'd &

remanded back to trial ct to reinstate the J for Lind

Apparent Auth: principal acts in such a manner as to convey the

impression to a 3rd pty that an agent has certain powers thich he

may/may not actually possess.

1% would quadruple the salary of Lind's supervisor, Kaufman. May be

unreas for Lind to believe that he was offered that salary.

Three-Seventy Leasing Corporation v. Ampex Corp:

Joyce owned 370 Leasing Corp, Kays was his salesman.

Cost of memory units was 100,000 each & w/a down payment of 150,000.

Nov 17,1972 Kays sent Joyce a confirmatory memo for the delivery dates

for the memory units.

An agent has apparent authority sufficient to bind the principal when

the principal acts in such a manner as would lead a res. prudent person

to suppose that hte agent had the auth he purported to exercise.

Muller agreed that all communications were to be channeled thru Kays to

Joyce

Neither Mueller nor Kays has the auth to bind Joyce in this case.

Ampex should indicate that all negotiations are subject to the approval

of the K manager.

Joyce should have inquired as to who had the auth to make a binding K.

A resolution from the board of directors of the firm, issued by the Firm

Secretary should be issued/requested by Joyce to assure who has the auth

to form a binding K.

Indicators of Apparent Authority:

-a holding out to the public that the person is an agent

-Kays was held out that he had authority, indicia of app. authority

Quest: Whether person was held out as having apparent authority.

Billops v. Magness Construction Co.:

P's entered K to rent a ballroom at the franchisee's hotel.

Day of the banquet, director of the ballroom requested additional money

(extortion) & P's refused. Director continued to ruin the entire

affair.

This ct finds evidence of actual & apparent authority.

Actual Authority: principal expressly/implicitly grants to an agent when

the "or" controls "ee"/rt to control the "ee"'s business.

Franchisor here had a lot of control & the franchisee had little

discretion w/the operation of the hotel.

Apparent Authority: a holding out & reasonable reliance that originated

by the principal.

Co. sells out/advertises for a group of hotels. Hotels are indep. owned

& operated. The Franchcisor/Franchisee/all to become insolvent. How do

the Hotels protect themselves?

How do the other hotels protect themselves from injuries occurring at

other indep operated hotels w/the same name?

-Disclaimers will not work in the K b/c the law won't allow it.

-Signs indicating Owned & Operated by & Indep ownership & operation of

each hotel.

-Must reduce indicia of control.

***You can't prevent all liability on a guarenteed basis.

Inherent Agency Power:

Watteau v. Fenwick: [Inherent Agency]:

Humble was D's Mgr, license was always taken out in Humble's name. D's

were Watteau.

P was Fenwick who supplied the cigars.

Humble only had auth to buy bottled waters & mineral water.

Goods were req'd to be supplied by D's

We have an undisclosed principal

Holding one out as an agent requires:

Difficult to hold out if one doesn't know who the principal is.

-If the agent is empowered to carry on business w/the public, & the

agent does so, then that may constitute a holding out after the

principal is disclosed.

Must Prove (w/o holding out):

1. Agency in fact existed

***Where anyone has been held out as an agent by the principal, then

there is a K w/principal by Estoppel. The principal is resp for agent,

even if undisclosed, b/c they hired the indiv & b/c the agent is acting

for & at the benefit of the Principal.

***Reqt's of Agency [for exam purposes]

1. consensual relationship

2. agent is under control of the principal

3. agent acts on behalf of the principal

Rest 2d Agency s.

***Inherent Agency:

1. Must be an existing general agency

2. An act w/in the scope of auth/within scope of typical agent

relationships

3. An unauthorized act of the agent

(No holding out by the principal is req'd)

4. Reas belief by 3rd person must exist that the agent has the

auth.which she exercises

even if 3rd pty is unaware of the existence of the agency itself (or

principal)

Kidd v. Thomas A. Edison, Inc.:

Fuller was hired by TAE,Inc. to K singers for "tone tests" recitals.

-singers were going around the U.S. promoting records

Fuller was to learn what the artists wanted re: fees expected

Fuller was to tell the artists that TAE, Inc would pay for the fees, or

insure the payment.

Fuller was to make the K's & then bring them to Maxwell for approval.

Maxwell was Fuller's supervisor & Maxwell had to ultimately report to

Edison.

P,Kidd, alleges that the K was an unconditional engagement for a singing

tour. She is most likely alleging a breach of K.

This case should have been argued under inherent agency. (some

disclosure of the principal, so it can't be apparent agency/shouldn't

be.

Rest 2nd Agency s3

HYPO: Principal says not to hire Tom to operate the camera. Principal

then pays off the Agent & Agent leaves Tom. Can Tom sue Principal &

prevail? & if so, under what theory?

Tom may win against the Principal under the theory of inherent agency

b/c the agent in this case would usually hire him to operate the camera,

so Tom could reas. believe that the agent had the power to do so.

Agent was never held out as having a power that she didn't possess.

Fiduciary Obligation: Agent's duty to the Principal

1. To act w/reas care & skill for the purposes of the agency

2. To disclose all relevant info to the principal

3. Keep & render accts

4. To act only as authorized

5. To act in good faith & loyalty

Fiduciary Obligation:

General Automotive Manufacturing Co. v. Singer:

Singer, D, is a machinist consultant & Mfr's rep. D was also a general

manager & was to receive a fixed monthly salary together w/a sum equal

to 3% of the gross sales of the P.

-P was to devote entire time, skill, labor, & attentionto employment &

was to work for 51/2 days.

Singer made a profit for himself while employed by GAM.

-failed to disclose info to employer.

Disgorgement:

Ct deprives D & others in his position from engaging in other

bus/incentive to not report to your employer such information.

Possible breach of employment K.

-less to recover b/c based on hrs lost & not actual damages.

Bancroft-Whitney Company v. Glen:

Glen was President & director of the co. He had fiduciary obligations

to the co & possibly the shareholders.

Lawyer's Co-op owned the P/Company & Gosnell was the President.

Bender was the head of Bender Co & Glen accepted an offer of employment

by Bender, & brought many associates w/him to the company.

Glen failed to disclose information to P co. when he had a fiduciary

duty to do so, never informed them of the raid, used info to attract

employees when making the offers, assisted in solicitation of employees

of P to Bender.

Issue: Whether Glen violated his fiduciary duty b/c of the above-

mentioned conduct & therefore those who hire, guilty of unfair

competition?

Could give rise to tortious interference w/contract

Corporate officers & directors aren't permitted to use their position of

trust & confidence to further their private interests. They stand in a

fiduciary relation to the corporation & its stockholders Rule demands

of a corp officer/director, peremptorily & inexorably, the most

scrupulous ovservance of his duty, to protect the interests of the

corporation committed to his charge, to refrain from doing anything that

would work injury to the corp, or to deprive it of profit/adv which his

skill & ability might properly bring to it, or to enable it to make in

the reas & lawful exercise of its powers.

An officer must exercise his powers in good faith w/a view to the

interest of the corp.

Duty of loyalty & care, to corporation & shareholders.

Town & Country House & Home Service, Inc. v. Newberry:

Cleaning business, employees left & took a lot of their ex-exployer's

customers

Issue: Whether the employee's owed a duty of loyalty?

Even where a solicitor of business doesn't fraudulently operate under

former emplyer, he acan't solicit employer's curtomers who aren't openly

engaged in business in advertised locations or whose available as

patrons can't be easily ascertained & whose business waas secured from

yrs of bus. effort, advertising, time& money, etc.

If you're making a general solicitation, then you're not using

confidential information

Ct: former employees lose & the Employer wins (Town & Country)

Agency is a consensual relation, no express agreement to form. Somewhat

of a fiduciary relationship b/t the agent & principal. Agent works for

& under the control of the principal.

Indep Contractor Agents & Non-Agents OR Indep Contractor v. Servant.

Indep Contractor doesn't work on behalf of or under the control of

another.

Indep contractor Non-Agent: works at arms length for another

Indep Contractor Agent: not under control of the other, but does act on

behalf of another.

Indep Contractor Agreement: ct characterized the indep contractor as a

servant. Whether principal had the rt to control. If servant, acts on

behalf of the principal.

Partnerships:

Partnership: an association of 2 or more persons to carry on as co-wners

a business for profit.

Advantages & Disadv of Partnerships & Coporations:

1. Current tax system: tax partnership income only once (v. corp

income-taxed twice)

-Corps: Calc profit & loss & tax net profit

-Corps: Indivs pay indiv tax on same profit (shareholder)...Double

Taxation.

2. Gains & Losses go to the Partners & claim the gain/loss indiv. tax

return

3. Sub. 'S' corporations: smaller corps, under such status won't pay

taxes, but instead shareholders claim corp income on indiv tax returns,

very much like partnerships.

Life v. Unlimited Life:

1. A corporation has unlimited life, can remain for an indefinite time

2. A partnership has a limited life b/c if one partner leaves/dies, then

the partnership is dissolved.

Liability:

Corporations can limit their liability.

-Limited to amt of investment.

Partnerships, exposed to unlimited, personal, liability.

Partnerships; Partners Compared w/Employees:

Fenwick v. Unemployment Compensation Commission:

Beauty supply shop. Ct is trying to determine whether Fenwick should

have to pay unemployment comp under NJSA ß 4:21-1. [If she's a partner,

then he doesn't have to pay.]

Although a partnership K was agreed upon, she was lacking many of the 5

elements req'd for a partnership to exist.

He who alleges a partnership has the burden of proving the partnership.

Frank v. R.A. Pickens & Son Company:

Parties involved: -RA Pickens & Son (owners of the land)

-RA Pickens & Son Company (lease from above)

In general, the private agreement of the ptys occupies the highest

degree of priority.

Frank is looking for his accounting & liquidation of a partnership share

in the co.

Frank was a partner in the RA Pickens & Son.

After termination w/co., a ck for $35,805.97, which Frank refused.

Initial purchase of his partnership was based upon the book value:

***-Book Value: an amt on the books of a firm, reflecting the or cost

of assets, less depreciation . (an allowance for decline on value of an

asset by virtue of the passage of time & wear & tear), plus profits that

haven't been distributed to the partners. Can be misleading. FOR EXAM

PURPOSES

-Mkt value & book value can e substantially different.

In mkt-oriented society, good pub policy reas to allow indiv K to

override UPA Code.

Legislature won't necc include/foresee all problems. Need to

allow/utilize flexibility when applying the code.

Frank was more likely an employee w/a profit share.

-if he is a partner, then he is an agent.

Ct determined that the UPA wasn't applicable, but that he was a partner,

but the rules for termination of his partnership interest were pursuant

to that agreement by the ptys.

If Mr. Frank is an employee of the Co & the President of Son, then he

would have a conflict of interest b/t fiduciary duties to Co & fiduciary

duties of Son.

Partners Compared w/Lenders:

Martin v. Payton:

KNK is a firm/partnership. They were in fin. trouble & Hall, the had of

it, had friends who would invest w/a loan.

The other three (who gave them a loan for 2.5Mil)

The return of the loan was 40% of profits w/a min & max amt to be

earned.

Hall operated KNK partnership, and also achieved resignation of all the

KNK partners.

KNK lost a lot of money by dealing w/a foreign exchange speculative

investments.

-dealing w/exchange rates, speculate & give advice to others, &

offered Xamt US v. Xamt in another currency. They speculated poorly on

values of the currencies.

KNK theorizes that the creditors became partners in the firm, doing

banking & brokerage. P was a creditor of firm, claimed D's made

investments, were partners, & were liable for the firms debts as such.

How do we distinguish b/t this & the Cargill case?

-In Cargill, Cargill was an agent of Warren, but not necc a partner.

Principal was exposed to liability.

-In Martin, funds were given, but Payton, etc, were not partners, only

creditors to the company.

-Argue that Payden didn't control Hall & weren't at same level/weren't

w/same level of mechanisms for controlling operations, etc as in

Cargill.

The Fiduciary Obligations of Partners:

Mainhard v. Salmon:

Lessor, Gerry & lessee, Salmon, entered a K to lease a Hotel which was

to be used as shops & offices.

Meinhard fronted money & in return was to receive 40% of the net profits

for the 1st 5yrs & 50% of the net profits for the remaining 15yrs.

Claim is Salmon breached fiduciary duties to Meinhard by entering a new

K for the same prop w/o consulting Meinhard.

Issue: Whether this is a joint venture & Whether this is a partnership

& Whether the fiduciary obligations are the same or diff from regular

partnerships.

-This is a joint venture/Co-adventure

Joint Venture: has a limited duration & a limited scope

Partnership: doesn't generally have a limited scope & the duration is

generally only limited by the lives of the ptys.

***Dissent by Andrews. W/in scope of joint enterprise, a fiduciary

obligation to all that relates to that venture. Fiduciary obligations

don't extend to the new entity.

***Correct rules re: partnerships made by Cardozo.

p.100 Duty of Loyalty by joint adventurers & partnerships.

-W/Partnerships: duty to disclose new opportunities & businesses.

Ct: P gets 50% less 1 share in the equity

Meehan v. Shaughnessy:

Meehan & Boyle were partners in D's law firm, Parker, Coulter, Daley, &

White.

P's contacted clients & sent letters, requesting to take their bus.

w/them & sent authorization forms.

P's also approached Cohen re: establishing the new firm.

P's also recruited Black & Fitzgeral in joining the new firm.

P's breached their fiduciary duties to the D's as partners.

***Not the last word on the issue of contacting clients b/f leaving.

***Obligations of partners can be varied by K (fiduciary obligations)

Would need disclosure b/c of potential breach of loyalty & duty to

disclose.

If Norma sued Mark, then the remedy would be disgorgement.

Bassan v. Investment Exchange Corp.:

Investment was Gen Partner in Auburn West

Auburn West was a Real Estate Investment Trust

Action was brought for an accounting & dissolution of the partnership

Issue: Whether partners consented to profits derived by Investment (Gen

Partner)?

No Agreement re: profits to be rec'd by IEC in selling prop to the

partnership.

Ct: no consent by the limited partners & IEC should be liable for

profits realized from the sale of the prop.

The Rights of Partners In Management:

National Biscuit Company v. Stroud:

Stroud told NBC that he wouldn't be personally liable for the sale of

bread to the partnership.

If 2 partners, need unanimous agreement b/t partners to be binding

Bread was delivered for $171.04, ordered by Freedman, after Stroud

declared he wouldn't be liable.

Partners are jointly & severally liable for the acts & obligations of

the partnership.

NBC prevails in this case.

Problem:

-Unpleasantness is generally insufficient for dissolution of a

partnership.

-Gen.View: A & B run real risk that terminating Don v. C's orders may

violate the Partnership agreement.

-What if A & B make an anti-nepotism rule & C hires D against the rule.

If grandfather clause, then not necc. a problem.

Day v. Sidley & Austin:

Law firm merges w/another firm.

P occupied chair on committee, and later was assigned a co-chair & his

offices were moved.

P seeks damages for loss of income, damage to professional reputation, &

personal embarrassment resulting from his forced resignation.

D's Summ J was granted b/c failure to state a claim upon which relief

could be granted.

The Executive Committee led the negotiations for the merger.

P had no rt to approve/disapprove & stop movement to new offices, so his

veto of the move is irrelevant.

No diminution of status b/c no rt to remain chair. (b/f or after merger)

Merger: fundamental change in a partnership & generally requires some

form of agreement.

-Agreement among the ptys.

Partners at Loggerheads: The Dissolution Solution:

Owen v. Cohen:

Owen & Cohen are the partners. Bowling Alley was orig operated at a

profit, later declining. Purpose of entity was to make a profit.

Owen was to paid back initial outlay of $$ out of the partnership

profits in addition to his salary.

Upon dissolution the partnership owed the loan to Owen.

ß2: Dissolution of a partnership is the change in the relation of the

partners caused by any partner ceasing to be associated in the carrying

on a distinguished from the winding up a the business.

ß3: On dissolution the partnership is not terminated, but continues

until the winding up of partnership affairs is completed.

Owens claims they can't carry on b/c of disagreements

Ct: dissolved partnership b/c serious disagreements that prevented the

partnership from carrying out.

UPA ß32, judicial dissolution is a more equitable remedy/situation.

ß4: After dissolution, rules for distribution, can derogate from rules

by agreement. (b)

Capital: generally orig capital investments in the company.

Collins v. Lewis: (I got called on for this case)

Cafeteria partnership. Collins was the investor & Lewis was to

construct, manage & operate.

Dispute over extra $$ beyond estimations.

Ct. held Lewis held up to his part of the bargain & Collins was in

breach.

Ct. refused to grant a decree of dissolution.

Monin v. Monin:

2 Brothers entered into a milk delivering partnership. Business began

to deteriorate & they dissolved the partnership.

Sonny applied for a DI K b/f actual dissolution & asked to be granted

the license from them to deliver milk from the time of dissolution.

Private auction resulted w/Charles getting the equip, etc.

Damages were awarded $64,000 [86,000-22,000(equip)=64 milk license]

Sonny breached/violated his fiduciary duties. Possible breach of K b/c

of the covenant not to compete.

Pav-Saver Corp. v. Vasso Corp:

PSC (Dale) & new Partnership w/Meersman is (Pav-Saver Co.), later to be

known as Vasso.

Dale turned over the trademark & patents to the new partnership. He also

allowed Meersman to draft the agreement, later approved by an attny of

PSC (& Pres).

Should have charged a license fee so that it is obvious that the patent

was still controlled by Dale.

ß38 UPAsupp.

Dale wrongfully dissolved the partnership & violated the agreement.

Difficult/impossible to continue to run the business w/o the patents &

trademarks.

Ct held for Vasso, he keeps the patents, trademark, & the liquidated

damages as specified in the partnership agreement.

-Dale gets a portion of the value of the partnership.

Liquidated damages aren't a penalty in this case in the view of the

court.

Good Will: intangible assets, can't be measured objectively/technically.

Limited Partnerships: generally run by a general partner. Limited

partners don't control the operation of the partnerships, & if they do

so, then they expose themselves to liability. Rely on the expertise of

a general partner. Very common in the real estate commodity. One of

the dangers is the risk of being made a general partner. (from

exercising control in the business)

Limited Liability Companies (): provide for limited liability & various

other corporate characteristics, however they retain sufficient

partnership characteristics so that they are classified as partnerships

for tax purposes.

-useful for firms that can't qualify as "S" corporations. "S"

Corporations have pass-thru taxation. Income earned by the corp accrues

to the indivs who own the S corp. Generally a "C" corporation, the

income of the firm is taxed as a corp & then the dividends rec'd by

shareholders is taxable.

-Limited liability, but partnership taxation methods.

***Authors of casebook that such limited liability companies will become

dominate form of business in the US.

Limited Partnerships:

Holzman v. De Escamilla:

Limited partnership which ran the farms. Gen. partner De Escamilla.

Russell & Andrews were limited partners.

Went bankrupt. Trustee brought action to determine whether Russell &

Andrews lost their limited partner status & have become the equivalent

of general partners.

Evidence revealed that R&A had some control over crops to be planted,

had control over check writing authority, & they required the Gen.

Partner to resign & replaced him w/a new manager.

-they managed the business.

Ct. found that all 3 were liable as general partners.

***Limited partners not to be liable as a general partner, unless, in

addition to exercise of rts & powers as limited partners, he takes part

in control of business.

The Nature of the Corporation; Promoters and the Corporate Entity:

Hypos:

1. If he lies, could be misrepresentation.

-Barrett still liable even after, under the doctrine of Corp. by

Estoppel.

Southern wins b/c they are a Corporation by Estoppel:

-could be argued that it is a de facto corporation.

Questions:

1. Can a corp be a pty to action?

-Corps can unilaterally agree to be held liable.

2. Can the initial agent/promoter avoid liability, absent an agreement

to the contrary, an agent for a not yet formed corp, an agent is liable

on the K. For the agent to escape liability, after the formation of

corp, the agent must obtain agreement of the other corp.

3. Who is liable if corp not ever formed?

-Absent an agreement to contrary, the agent is.

4. Are putative shareholders personally liable?

-They aren't, if the corp isn't a de jure corp.

5. A de facto corp is a firm not properly incorporated. It arises when

the organizers:

a. try to incorporate in good faith.

b. they have the legal rt to do so.

c. they acted as if the corp had been formed under these conditions,

cts may treat firm as de facto corp & impose limited liability.

6. A ct. will also treat a firm that wasn't properly incorporated as if

it were a corp, if the persons dealing w/firm:

a. thought the entity was a corp all along, and

b. they would earn a windfall, if not allowed to argue the firm is not

a corp.